Ryan’s Mortgage Blog:
Homeowners who have a HELOC need to be aware of some trends going on with lenders. For those who don’t what a HELOC is, it stands for Home Equity Line Of Credit. It is a loan set up similar to a credit card, where you have a maximum amount you can draw from, rather than for a fixed dollar amount in one lump some like other loans.
The “trend” I am talking about is lenders are reviewing most, if not all, HELOCs and freezing some. Many people are receiving letters in the mail that their home equity line has been cutt off. This includes people with who have never even touched their home equity account and still have the whole balance left to use. According to CNN.com, lenders are trying to stem losses from subprime mortgages and other high-risk loans, by cutting off these HELOCs. As of September, delinquencies on HELOCs were up 47% year over year, according to Economy.com; the numbers are expected to be worse in 2008. I have some friends from the Bay Area that have had their HELOC cut off and they didn’t see it coming at all. They have always paid on time and have plenty of equity in their house.
If your HELOC hasn’t been frozen you need to know your risk:
According to CNN.com these risks include:
– Area housing prices have fallen by 10% or more.
– People who bought their home within the last couple of years with little money down are seen as risks. Maybe even people who are in an Adjustable Rate Mortgage. Who knows who the lenders see as a “risk”.
– Banks have tightened their guidelines for new HELOCs. In years past you could get a HELOC for up to 100% of the value of your house. It has dropped to 60-90% depending on the lender and area. You should call your bank and ask what the loan-to-value cap is on new HELOCs. If your house debt is above that, your line could be at risk.
-A change in credit score or a missed payment could also flag your account. Reread your contract to see if such factors allow the lender to cut you off.
If you have been “frozen” from you HELOC, you can still fight it. The letter from the lender should explain why you were cut off, and if you think it’s untrue you should fight it. For instance, if they say your credit score has declined, but you know it hasn’t, run a report and send it to them. Maybe even have your home appraised if the value of the home is in questions.
Another scenario is you could get a loan from a different bank. If you have equity and decent credit, you probably would qualify with a different lender. I’d be happy to help assist you if you have any questions regarding the matter, or if you wanted to see if you would qualify for another loan. I can be reached at rbaker@PeregrineLending.com or 805-540-0866.